Category Archives: Federal Reserve

Bill Black: What if Bernanke Had the Character to be Candid?

Yves here. I suspect NC readers can go even further will Bill Black’s question!

The Fed (Sort of) Speaks, but is the Bond Market Really Listening?

Yves here. As has become typical of late, the markets reacted sharply to the release of the FOMC minutes on Wednesday and Bernanke’s remarks later. For a really good effort at parsing the minutes, see Fedwatcher Tim Duy. The one clear conclusion was how unclear the minutes were:

Nathan Tankus: The Fed’s Tapering Troubles and the Real Liquidity Trap

Since Bernanke started talking about “tapering off” Quantitative Easing, the bond markets have freaked out. This is a very logical reaction once you understand how liquidity traps operate.

Quelle Surprise! 38% of Prospective Home Buyers Halt Search Due to Rate Shock

We’ve been warning that the sudden rise in mortgage rates was going to create a great deal of buyer sticker shock. It’s already virtually halted refis. Further confirmation comes from the Urban Turf website:

Banks Outbidding Private Equity Funds at Foreclosures, Believing They Can Beat Them at the Pump and Dump Game

It’s conventional to deem local journalism to be dead, but Josh Salman at the Sarasota Herald-Tribune has written well-researched investigative story on bank bidding at foreclosures in his neck of the woods, Big lenders bidding to keep homes, that has national implications.

Michael Hudson: From the Bubble Economy to Debt Deflation and Privatization

Michael Hudson looks at the implications of ending QE in the context of the past 30 years of bubble blowing.

US Mortgage Rates Skyrocket

Yves here. So what is the Fed going to do, now that it has delivered a big blow to the nascent housing recovery? Risk its credibility by beating a serious retreat on taper talk, or keep whistling in the dark and wait and see what happens to July and August home sales (and remember, most housing market data is reported with a nearly two month lag…)?

Nathan Tankus: Krugman von Hayek

Mainstream economic discussions employ a false dichotomy. At one “extreme” you have Austrian economists who believe the current Federal Reserve policy is (or should be) causing inflation, malinvestment, and all sorts of other maladies. They think the nominal interest rate set by the Fed is too low and should be raised . At the other “extreme” you have Paul Krugman and “New Keynesian” company, who argue that the nominal interest rate set by the Fed is too high and should be lowered in some way. To the causal observer who is unfamiliar with the history of economic thought, these two positions seem diametrically opposed. They, in fact, are not.

Mortgage Rate Shock Likely to Dent the Housing Market

As regular readers know, your humble blogger, along with a lot of investors, was taken by surprise when the typically dovish Bernanke not only started using the taper word a month ago, but then made the demise of Fed heroics sound even more imminent by talking about higher unemployment “thresholds,” namely 7%, than had been voiced previously. And the reading of Fedwatchers like Tim Duy and (even before the FOMC statement) James Aitken is that the central bank wants out of the QE business sooner rather than later.

The impact on mortgage rates already looks very likely to throw a big bowl of cold water on the housing party.

Lee Adler: The Big Four Central Banks Muddy The Same Sea Of Liquidity, And Then There’s China

The world’s major central banks are now working at cross purposes, creating massive crosscurrents that are making life extremely difficult for investors. This isn’t likely to end soon. In fact, conditions should get worse.

The BIS Loses Its Mind, Advocates Kicking Citizens and the Bond Markets Even Harder

If anyone doubted that Ben Benanke’s “we’re convinced the economy is getting better, so take your lumps” press conference after the FOMC statement last week was awfully reminiscent of 1937, the newly-released Bank of International Settlements annual report is tantamount to a kick to the groin. And to change metaphors, if the Fed’s sudden hawkish posture is playing Russian roulette with the real economy, the BIS just voted loudly for putting a couple more bullets in the cylinder.

Monday DataDive: Fedspook, May Reports on Consumer Prices, New Home Construction, and Existing Home Sales

By RJS, a rural swamp denizen from Northeast Ohio, and a long-time commenter at Naked Capitalism. Originally published at MarketWatch 666.

Lambert here: rjs does what he does every weekend: Covers the most important economic releases from the previous week. Thanks, readers, for your feedback on formatting from last week; I hope you see some improvements. Don’t hesitate to make more suggestions. Also, the FRED geekery is fun.

Fedspook

The financial news of the week came as a result of the two day meeting of the Fed’s Open Market Committee, which really produced no news on its own. The statement barely changed from the statement issued after the last meeting, and Bernanke’s responses to questions at his press conference after the meeting (pdf transcript) were pretty much a reiteration of his statements in testimony before the Joint Economic Committee of Congress roughly 4 weeks earlier, i.e, that the economy was improving and they would soon be starting to taper off the from the $85 billion a month they’ve been injecting into the financial system, mostly by buying mortgage backed securities and reinvesting the interest proceeds of the Treasury bonds and MBS that they already hold on their balance sheet. However, market players must have not believed the first iterations, because as soon as the statement was released and Bernanke began to confirm what he’s already said previously, financial markets started heading south, and by the time the planet had spun once on its axis, prices in every market around the world & for most every asset class were down by 2% or more.

Warren Mosler: Consumer Borrowing Has Kept Economy Afloat, but for How Much Longer?

Yves here. Warren Mosler, who is one of the leading writers on Modern Monetary Theory, circulated an e-mail with his assessment of the state of the economy and the impact of quantitative easing and agreed to letting me publish it.

The Taper is Too Sharp

Yves here. I have to say I’m still gobsmacked by the Fed’s belief that the labor markets are showing meaningful improvement, and the further “clarification” that this means the central bank thinks it’s on track to start easing up on bond buying this year.

Bernanke Kills Fed Credibility and the Confidence Fairy in One Shot

How many markets are in upheaval right now? We’ve pointed to several things that have been troubling about the Fed’s apparent view prior to the FOMC statement yesterday and the Bernanke press conference, which only rattled investors further.